Accounting Standard 2 outlines the valuation of inventory. It defines inventory as assets held for sale, in production, or as materials to be consumed. Inventory includes goods for resale, finished goods, work in progress, and raw materials. It is valued at the lower of cost or net realizable value, with raw materials at cost. Cost includes purchase price, duties, freight, and conversion costs minus discounts. Net realizable value is estimated selling price minus completion and selling costs. Inventory must be valued at the financial year-end.

1. ACCOUNTING STANDARD 2
VALUATION OF INVENTORY
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

2. VALUATION OF INVENTORY
Applicable from 1-4-1999.
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

3. MEANING
AS 2 defines Inventory as ASSETS-
o Held for sale for ordinary course of business
(FINISHED GOODS)
o In the process of production for such sale (WIP)
o In the form of materials or supplies to be consumed in
the production process or the rendering of services.
(RAW MATERIAL)
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

4. ITEMS INCLUDED OR EXCLUDED
INCLUDED
• Goods purchased or held
for resale.
• Finished goods
produced or WIP.
• RM, Maintenance
supply, consumables,
loose tools.
EXCLUDED
• Spare parts, servicing
equipments
• WIP arising under
construction contract
• WIP in case of service
provider
• Investment held as stock
in trade. Eg. Shares,
Debenture
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

5. Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

6. VALUATION
• NEITHER NOR
BASIC RULE:
COST
OR
MARKET VALUE (Net Realizable Value)
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

7. VALUATION
• It is done only at the last day of Accounting
year to value the closing stock.
• Raw materials, stores, spare parts are valued at
cost even if NRV is lower than cost.
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

8. • NET REALIZABLE VALUE=
Estimated Selling Price
(-)Estimated Cost of Completion of WIP
(-) Estimated cost of making the sale
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

9. • COST OF INVENTORY=
Cost of Purchase
(+) Cost of Conversion
(+) Selling & Distribution Expenses
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

10. • Cost of Purchase=
Purchase Price
+ Duties & Taxes
+ Freight Inward
+ Other Expenses
(-) Trade discount
(-) Rebates
(-) Duty & Drawbacks
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY

11. THANK YOU
Thursday, 10 June 2021
NIDHI RAI, DEPARTMENT OF
ACCOUNTANCY